Booming Canadian cities face space crunch in 2006

8 Dec, 2005, Vancouver

Build 'em and they will come could be the mantra for Canada's major office markets for 2006 and beyond, according to Cushman & Wakefield LePage's Annual Office Market Forecast, released today. Most major cities in Canada are expected to experience strong demand for commercial space in 2006. In boomtown Calgary especially, the "no vacancy" sign could become a common sight, while vacancy will also reach new lows in Vancouver, Calgary and Toronto.

Cushman & Wakefield LePage's Annual Office Market Forecast is based on survey results collected from experts in eight LePage markets in Canada and combined with national research analysis.

Driven by an insatiable demand for space from companies tied to the oil and gas sector, Calgary's office towers are already busting at the seams - with little relief in sight. With the city's central area office vacancy expected to bottom-out at 1.8% in 2006, businesses will be challenged to meet their space needs until new supply eases the situation. In just one year, ending Q3 05, Calgary's citywide vacancy plummeted by 50% -- from 4.8 million square feet to 2.4 million square feet. With no signs of this boom letting up and virtually no new space scheduled to open in 2006, Calgary's downtown vacancy could come close to the zero mark.

"2006 is going to be the tightest market we've seen in over 20 years," confirmed Chris Anderson, Vice-President and General Manger, Cushman & Wakefield LePage, Calgary. "We're going to see more people in less space, hotelling is also an option, and demand for suburban space is going to climb.

"The good news," added Anderson, "is that we have a solid economic bedrock from which to build. Developers are feeling confident that new buildings can deliver long-term returns and we expect a number of new building announcements in 2006," added Anderson. "By 2010, Calgary's skyline will have a completely different look."

Vancouver is also sitting pretty for the coming year, thanks to an infrastructure boom related in part to the 2010 Olympics and increased resource sector activity. With central area vacancy projected to fall to 6.7% in 2006 and with little new space coming on stream until 2007, the Class A office market will see continued pressure on rental rates, which should spur development announcements in this market as well.

In Canada's largest office market, Toronto, demand for space will remain strong through 2006, pushing the vacancy rate in the central area down to 7.6% from 8.9% (Q3 05).

"With 161 million square feet of inventory, tenants in Toronto have some room to maneuver, but vacancy is definitely tightening and large contiguous blocks are becoming increasingly scarce," said Paul Morse, Executive Vice President of Office Leasing, Cushman & Wakefield LePage, Toronto. New construction announcements expected in 2006 will create much needed options for tenants with larger space needs. Meanwhile, as in other tight markets, low vacancies will exert upward pressure on rental rates and more companies will move to fringe areas surrounding the core and suburban markets. Where supply shortages exist, the suburbs also offer a shorter turnaround time for new development - 14 to 20 months compared to 40 months downtown.

However, with the race on in downtown Toronto to find enough tenants to justify new construction, landlords are more than willing to negotiate to secure their key tenants. This will help to contain rate increases in this competitive market.

"Basically, this is a world-class city that encourages business growth," says Morse. "Landlords and developers will respond to market forces and business will continue to explore real estate options that support their corporate objectives. Fortunately, despite high property taxes, downtown Toronto continues to demonstrate its draw as an ideal location for many corporations, both foreign and domestic."

As for other Canadian markets, the report found that Edmonton, Winnipeg, Ottawa and Montreal are also geared for vacancy decreases in 2006. Halifax can expect a slight increase in vacancy due to anticipated new supply. There is no question however that the 2006 Forecast for continued growth in office markets indicates that corporate Canada is moving forward with renewed confidence.

Key Cushman & Wakefield LePage office market predictions

1. Continued strong office demand and falling vacancy forecast in 2006 for major growth markets.

2. 2006 central area vacancy projected to reach a new low of 1.8% in Calgary, while falling to 4.9% in Vancouver and 7.6% in Toronto.

3. Shortage of new supply will limit options for tenants seeking large blocks of contiguous Class A space in downtown areas.

4. Suburban and downtown fringe office markets will see increased demand as tenants seek alternatives to tightening central markets.

5. Significant new supply is expected to come on stream beginning in 2007, opening the doors for long-term strategic planning by tenants and landlords through 2006.

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